Section 621 of the Dodd-Frank Wall Street Reform and Consumer Protection Act modifies the Securities Act of 1933 to prohibit the underwriter, placement agent, initial purchaser, or sponsor, or any affiliate or subsidiary of any such entity of an asset-backed financial product from betting against that very product for one year after the product’s initial sale. The rule prohibits anyone who structures or sells an asset-backed security or a product composed of asset-backed securities from going short, in the specified timeframe, on what they have sold, and labels such transactions as presenting material conflicts of interest. This Comment discusses traces this new law’s development through the Financial Crisis by recounting the events involving alleged material conflicts of interest that gave rise to Section 621’s drafting as well as statements of its drafters. The Comment then argues that adding a disclosure exemption to Section 621 via the corresponding SEC regulation implementing it would be preferable to an outright prohibition because a disclosure exemption would 1) be more consistent with the securities laws; 2) provide purchasers with sufficient protection while still allowing the markets to operate with limited restriction; and 3) allow buyers to price the risk of securities affected by material conflicts of interest.
Joshua R. Rosenthal,
Burning Down the House or Simply Rolling the Dice: A Comment on Section 621 of the Dodd-Frank Act and Recommendation for Its Implementation,
17 Fordham J. Corp. & Fin. L. 1263
Available at: https://ir.lawnet.fordham.edu/jcfl/vol17/iss4/9
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